An analyst from Maxim has revised the price target for PennantPark Floating Rate (PFLT, Financial), reducing it from $12.50 to $11.50, while maintaining a Buy recommendation for the stock. Despite reporting net interest income that didn't cover the quarterly dividend, the analyst does not foresee any immediate reduction in dividends for PFLT. Strong origination activity at PennantPark outpaced moderate loan payoffs, leading to a 6.8% growth in its investment portfolio, which helped counterbalance the impact of declining loan yields.
PFLT Key Business Developments
Release Date: May 13, 2025
- Core Net Investment Income: $0.28 per share; adjusted for additional shares, $0.30 per share.
- Portfolio Growth: Grew to $2.3 billion, up 7% from the prior quarter.
- New Investments: $293 million invested in three new and 54 existing portfolio companies at a weighted average yield of 9.9%.
- Net Asset Value (NAV): $11.07 per share, down 2.4% from $11.34 per share last quarter.
- Debt-to-Equity Ratio: 1.3 times as of March 31.
- Weighted Average Yield on Debt Investments: 10.5%.
- Nonaccruals: Represent 2.2% of the portfolio at cost and 1.2% at market value; pro forma nonaccruals represent 1% at cost and 0.5% at market value.
- PIK Income: 3% of total interest income.
- Operating Expenses: Interest and expenses on debt were $23 million; base management and performance-based incentive fees were $11.9 million; general and administrative expenses were $1.85 million.
- Net Realized and Unrealized Change on Investments: Loss of $23.8 million.
- Portfolio Composition: 90% first lien senior secured debt, less than 1% subordinated debt, 3% equity of PSSL, 7% other equity.
- Debt-to-EBITDA Ratio: 4.2 times.
- Interest Coverage: 2.3 times.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- PennantPark Floating Rate Capital Ltd (PFLT, Financial) reported a solid quarter despite market volatility, with a focus on supporting existing portfolio companies and private equity borrowers.
- Approximately 80% of originations came from existing borrowers, showcasing strong relationships and origination capabilities.
- The portfolio's weighted average yield on debt investments was 10.5%, with 100% of the debt portfolio being floating rate, which is beneficial in a rising interest rate environment.
- PFLT has taken significant steps to strengthen its balance sheet, increasing total leverage capacity by $750 million through various financing activities.
- The company has a diversified portfolio across 159 companies and 49 industries, with a focus on sectors that are recession resilient and generate strong free cash flow.
Negative Points
- Net realized and unrealized change on investments resulted in a loss of $23.8 million for the quarter ended March 31.
- The net asset value (NAV) per share decreased by 2.4% from the previous quarter, down to $11.07.
- Three new investments were added to nonaccrual status during the quarter, representing 2.2% of the portfolio at cost.
- Market uncertainty, particularly related to tariffs, has slowed down new M&A activity, impacting the deployment of capital.
- Despite a robust capital raise, the company is still underlevered with a debt-to-equity ratio of 1.3 times, below the target leverage of 1.5 times.
